Final answer:
To calculate Acme's free cash flow, you need to determine the taxable income, net cash from operating activities, and after-tax cash flow by subtracting the tax amount from the national income. The tax rate of 25% impacts the available cash after taxes. The correct option is B.
Step-by-step explanation:
To calculate Acme's free cash flow for the year, there are several steps involved. First, you need to compute Acme's taxable income, which can be derived by subtracting deductions and exemptions from the adjusted gross income.
Second, to determine the net cash provided by operating activities, you must look at the company's cash flows from its core business operations.
Next, using the provided tax rate of 25%, you calculate Acme's after-tax cash flow by finding the tax amount that Acme would have to pay on its taxable income and subtracting that from the national income, leaving you with the after-tax income.
Using the example where the taxes are 20%, the after-tax cash flow would be national income ($300) minus the tax amount ($60), leading to an after-tax income of $240.
Lastly, you analyze the impact of the tax rate on free cash flow. The tax rate affects the amount of cash that is available for the company to use after paying taxes. In Acme's case, a 25% tax rate means that a quarter of the taxable income will be paid as taxes, reducing the amount available for reinvestment or distribution to shareholders. The correct option is B.